Defining a budget for development projects is frequently referred to as an art form. As seems to be true with all business ventures, your cost projection can easily be the subject of “fuzzy math,” with little bearing on reality. Hourly rates for development time, escalation costs for rapid development, and pricing of tools and other resources can fluctuate based on little more than what the client can afford.

To ensure an accurate projection of the amount of money required to deliver a solution, follow the guidelines below to help you create a consistent and justifiable budget that is realistic.

Basics of budgeting
A budget is one of those pivotal tools that is used across many departments within a company. For the developers, it dictates how much time to spend on specific areas of the application. For the project manager, it’s a baseline used to determine whether the project is on track. For sales or the client, it correlates directly to the success of the effort. It’s no surprise that one of the biggest issues in creating a budget is interpretation.

Regardless of circumstance, a number of basic philosophies can help your budgeting immensely by protecting it from subjective review. By understanding concepts, and making sure that everyone involved understands them, you’ll be on the right track to an accurate projection:

• Project costs and project budgets are two different things. Always start by identifying project costs.
• Project costs are not defined solely in monetary amounts. Include actual amounts, with shipping and taxes, for software or hardware purchases that must be made. If you’re pro-rating the costs of using pre-existing hardware and software tools, include it in number of hours. Likewise, developer effort costs are recorded in hours, not dollars.
• Once you’ve laid out your costs, identify your risks and assign a percentage reflecting how much each risk factor may affect the project as a whole, or a portion of the project. Each development team should have a risk value assigned to it, to cover reasonable costs such as hiring the occasional contractor to get a timeline under control, unforeseen overtime, and so on.
• Your budget, then, is the total of the costs, as transcribed into a monetary figure, plus the total risk percentage of that cost. Define conversion values that you use to represent equipment pro-rating and development times.
• Your budget is not an invoice. Once you’ve determined the hard figures involved, leave it up to your company’s business representatives to make adjustments for profits. Make sure they understand your figures reflect actual costs.
• A budget should always be labeled as an estimate, until it is finalized and approved. This helps to manage expectations and prevent miscommunications from being written in stone.
• A single person does not create a budget. At the very least, all of the following should be consulted: lead developer, project manager, and a business-side driver.